Medibank chief executive Craig Drummond has called on the $20 billion health insurance industry to work more closely with the federal government to head off an affordability crisis. He plans to further invest in home healthcare services to encourage more people to seek treatment outside the hospital system.

Mr Drummond, 56, used his first anniversary running one of the country's top health insurers to highlight the nation's soaring cost of living which he warned was contributing to the mass exodus of young people from private health insurance policies.

He said the industry must focus on working with the government to reduce healthcare costs, which would result in lower premiums, and said the country relied too heavily on unnecessary hospital treatment compared with other parts of the world.

Medibank chief executive Craig Drummond is only a year into the role and a three year turnaround at the insurer and says the company welcomes the decision Louie Douvis

"I've sat with customers in the last three months who have said they simply can't afford it [insurance]. They are making choices about mortgage, food – and we have had people say to us they have cut back on their meat meals.

"Customers in recent weeks are telling us they are not heating their house because they can't afford all of the things currently in their budget," he told The Australian Financial Review.

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"We should all be concerned about where we are at in the system. There are pressures, it is not dire and the best way to ensure it doesn't become dire is to deal with those issues," said Mr Drummond, who visits Medibank's call centre once a week to listen to customer complaints.

Medibank and other insurers want the federal government to maintain the health insurance rebate, lower the cost of expensive medical devices such as prosthetics and make more information around issues such as repeat surgery public. It is part of a wider lobbying effort to encourage government policies which lower the cost of healthcare and encourage patients to be treated outside of hospitals where appropriate.

Letting policies lapse

Medibank was the first insurer this month to front up to a Senate inquiry into private health insurance which is still taking submissions. Phasing out the private health insurance rebate, as proposed by the Greens, would save at least $2.5 billion a year, Parliamentary Budget Office figures show.

Mr Drummond, the former finance chief at National Australia Bank, said the industry was at an inflection point and must be more transparent or it would face a political backlash like that suffered by the big banks.

"We're at a critical juncture and the time to act on reform is now.

"We have nothing to hide whatsoever. We will go and talk when we are asked to. It is in our best interests if we can lower the costs of what we can do because we will have fewer customers dropping out.

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"But the costs are being driven by the system. We are passing on costs, we are not generating the costs growth. But if we don't front into these issues we will be subject to more scrutiny," he said.

Healthcare costs in Australia have increased by 5-6 per cent per annum, partly due to the ageing population.

But insurers say a "tsunami" of chronic disease-related claims and a sharp uptick in mental health issues are overburdening the system.

Medibank says 2 per cent of its customer base account for 35 per cent of claims. The insurance industry wants a crackdown on overpriced medical devices, particularly prosthetics, which it says would be the first step in overall reform.

Mr Drummond said the industry should focus on alternative care instead of automatically sending patients to hospital. For example, 80 per cent of hernia operations involve an overnight stay compared with 20 per cent globally.

No 'major acquisitions on the horizon'

He revealed Medibank has acquired healthcare provider HealthStrong, which has a network of 280 clinicians, for $37 million.

The acquisition is part of a wider strategy to sell services such as chemotherapy, rehabilitation, physiotherapy and wound management for patients in nursing homes or their private houses.

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"We see opportunities in that whole health services area. We don't have any major acquisitions on the horizon. Whatever we do will be modest but we will also grow organically," he said. Medibank, which already provides healthcare for Australian Defence Force personnel, has no plans to buy another private health insurer.

Mr Drummond started in the top job on July 4 last year following the sudden departure of his long-serving predecessor George Savvides after 14 years.

An alarming increase in customer complaints and a slide in market share to 27.6 per cent forced Mr Drummond to reset earnings expectations as he invested back in the company.

An upbeat Mr Drummond said his focus would remain on customers and gave an unconventional response to investor queries about whether earnings growth would accelerate to meet his long-term incentive targets.

"Money is important to everyone but that's not why I'm here."

He said the company would focus more on long-term strategy in the year ahead after spending his first year cleaning up problems with an IT systems upgrade and falling customer service standards.

'Operational side is better, touch wood'

But he said customers would come before profits as part of a long-term strategy to stem eight years of declining market share.

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"You have to get your organic business in good shape because if you don't you have no chance. We've had to stop the bleed on customer numbers and that is getting into a situation where we can grow our customer numbers.

"We see opportunities in that whole health services area," he said, flagging a different strategy to his competitors who are acquiring dental and GP clinics.

"I feel we are now getting into a phase where we can raise our eyes and increase our line of sight a bit because the operational side is better, touch wood.

"We still have to talk more strategically to the market and we clearly have to make reasonable returns for our shareholders and we are focused on making sure we are accountable on that. We are looking at how do we serve the broader health needs of our customers."

Mr Drummond, less hostile towards hospital operators than Mr Savvides, said it was a "delicate balance" addressing affordability. Critics argue private health insurers have vested interests when it comes to patient care.

"We are not suggesting hospitals don't do a great job ... but what we are suggesting is not everything needs to go to hospital," he said, referring to procedures such as knee arthroscopy.

"We need to be careful about not incentivising lower value procedures. I'm not a medical practitioner and our healthcare system is good at what it does but because we have a fee for service payments system in Australia some volume gets through which would be better served in out-of-hospital procedures."

Medibank's share of industry complaints improved to 37.8 per cent in the March quarter from 61 per cent in the September quarter last year. Its share of disputes has also fallen to 17 per cent, the lowest level since 2000.

More than 10,000 people poured into the nation's capital on the ninth day of protests over police brutality, but what awaited them was a city that no longer felt as if it was being occupied by its own country's military.